Investors treat pensions much like a leaky roof: their attention is captured only when the roof leaks, or when there’s a funding problem requiring cash injections into a pension fund. That’s a legitimate concern, because it siphons cash away from projects that benefit investors. Pensions and other postretirement benefit plans affect earnings in other ways, however. The accounting for benefit costs produces one figure made up of many pieces – some of which make sense in terms of being related to employee compensation, like service cost, and some that make less sense, like amortization of deferred losses.

The FASB is considering making the service cost the only element in total benefit cost displayed in operating income after more than 25 years of opaque presentation. If they do that – and they should – some firms might see operating income increase. It won’t be a certainty, however, depending on the other elements of each firm’s benefit cost. In this report, the S&P 500 companies with defined benefit plans are given the pro forma treatment for the last three years, and the results vary widely.